As the global spotlight turns to expose the social and ethical behavior of business in an increasingly challenging market, the pressure is on for companies to revise models and check social responsibility. For a multinational corporation like Philip Morris International (PMI), one of the world’s largest tobacco firms, the question of ESG is at the core of their future integrity and market success. Their recent policy, “Delivering a smoke-free future” seems to contradict the product that brought them so much success. So how can a “Big Tobacco” show the world a true transformation is underway? Executive sat down with Gregoire Verdeaux, Senior Vice President of External Affairs at Philip Morris International, to find out just how the company plans to move away from the cigarettes that have been firing the business since 1847.
What exactly does Philip Morris International mean when it says it wants governments to adopt smoking policies with a more balanced approach? And what would be the role of Philip Morris International in that regard, where does it fit into Philip Morris’s strategy?
It is at the absolute center core of our strategy. Our business drive transformation is driven by the fact that we can provide smokers who cannot quit, with better alternatives. What do we mean by the balance? Well, what we’re talking about is the traditional policies of tobacco control. Prevention, telling people that they should not start smoking. Cessation, once we have started telling them that they should stop, then taxing the product to make it more expensive and therefore, potentially on paper, getting people to stop smoking. All of that has proved over time, that it’s not really working.
In 2000, 22 years ago, 35.8 percent of the adult population in Lebanon smoked. Today, it is 34 percent, it dropped by 1.8 percent. Japan has reduced the number of its smokers by 44 percent in five years. Norway by 50 percent; the UK by 28 percent. They [the countries] opened up to something else, which does not mean that they stop having prevention and cessation in taxation, but they also try something else – that’s what we mean by balance.
In an extractive economic model like Lebanon, a lot of government revenue comes from tobacco products. Is there a leverage here that can be played?
I think that first of all, in the case of Lebanon, the current situation with hyperinflation is putting all ideas of extracting government revenue in perspective… So, I think what we need to do is not to look at this from a sort of immediate response, but more like a long-term plan. If Lebanon wanted to really change the structure of its smoking prevalence, in that the numbers collapse, like it has happened in other places, what should be done? And what can be done that is also leveraging tax revenue? If you want a new product to compete with cigarettes, there needs to be an incentive. Otherwise, it’s very difficult to get the consumer to do a switch.
In terms of advocacy, would you consider partnering with civil society players, international NGOs or local players, as pressure groups?
To be clear, we as a company do not have a policy to pressure governments, that’s not our role; we’re not activists. What we like to see ourselves is that we are proposing, I mean, we’re contributing to an improvement of the situation on tobacco control. A number of places, consumer organizations, do like to exchange with us to also understand, for example, results of our consumer research or to make suggestions about a regulatory framework precisely.
How would you define PMI’s definition of Environment, Social and Governance (ESG) integration?
I think that our ESG approach is really part and parcel of the business transformation of the company. Through the business transformation, we are trained to improve the impact we have on society and make it gradually more and more positive. Our ESG approach is coming from the exact same call in a different way, with a different avenue but which is really to look comprehensively at our operating model at various frameworks that are in place by financial markets and multilateral organizations, society, and try to answer point by point on how we improve gradually our footprint and our impact.
There is a bit of a dichotomy because just as much as your attempts to promote a smoke free environment have been achieving great results, at least in my family (I can vouch for that at least), you are still dragging behind very heavy luggage. To what extent is your reporting mechanism at PMI able to identify or qualify the damage that the old habits of PMI are still causing? How is this raised on a board level?
Well, I don’t want to make the board speak on this issue. What I can say for myself on behalf of the company is that you need to take into account that the journey didn’t start 20 years ago, it started six years ago. Things take time to shape up. Gradually, with the expansion of smoke-free products, the experience that you yourself have will spread into society, inevitably. We see this happening already in places where the penetration, the share nicotine has on the market or smoke free products, are in the double digit (at the moment not the case of Lebanon).
When we look at a dilemma like that, one that has been really haunting humanity for the last 100 years, we have to look at all the stakeholders. Everybody has a big burden because governments have allowed this to happen, and they have to have the proper policies to take responsibility. It has to be an integrated approach to solve this problem, including tobacco companies and the consumer, most probably. Also, civil society, I think they have a big role to play.
You’re right. Civil society, government and industry. Industry needs to be the zone of comfort with visibility and predictability to invest because if you want to scale this up, you’re talking about big amounts including on the affordability price point (Lebanon’s obvious question). Then you need civil society, NGO, consumer association people, that are able to be there as a sounding board, and that is fundamentally how you do market design.
Phillip Morris seems to be a leader in innovation and puts out product offerings that are able to move forward alongside competition. But to what extent will competition be hindered to progress in that direction? Or will they find it as an opportunity, to fill a void that maybe is created for them to grow their market?
You know, you have three categories of smoke free products, you have heated tobacco products, electronic cigarettes and nicotine pouches. So, all three categories in different markets are subject to competition, more or less. We just observe that we are not the only one planning about the growth of this market. We are the one that says the end game of this market, the design of this market should lead to the elimination of cigarettes. That is true, it’s PMI only.
Do you see future competition with you on that movement?
If I take this from a sort of economic theory standpoint, proposing the least performing product, (cigarettes) to the most vulnerable class of citizens, [which is] the case today, [as] people in low-income brackets smoke more. This is the definition of a market failure – if a market doesn’t lead naturally to the optimum distribution of resources. This is why I completely support the project of the company to lead the market to the end of cigarettes because this idea that “ah, there still will be cigarettes out there” – that’s really a suboptimal market structurally.